Agencies affirm Alea’s A-
KKR-backed Bermudian Alea received a strong endorsement from AM Best and Standard & Poor’s (S&P) last week as the rating agencies affirmed their A- stable outlook financial strength ratings on the (re)insurer.
AM Best affirmed the ratings of Alea and its (re)insurance subsidiaries on Tuesday (25 May) “based on the group’s excellent level of consolidated risk-based capital and improving market profile”.
The agency said its concerns over Alea’s “potential growth-related capital strain” had been addressed by the group’s IPO on the London Stock Exchange last November, yielding $263mn in net proceeds.
S&P, which also affirmed Alea’s BBB- long-term counterparty credit and senior secured debt ratings, mirrored its rival’s view on the strong capital position the (re)insurer enjoys.
Credit analyst Simon Marshall said the ratings “reflect the group's very strong capitalisation, strong competitive position and management, and improving operating performance”.
Against this, said S&P, should be set Alea’s “marginal historical operating performance”, and its expansion into liability business with its inherently greater pricing uncertainty.
"The stable outlook reflects our expectations that Alea will convert its recently assembled platform for success into significant bottom-line profits in the medium-term favourable market conditions," Marshall explained.
S&P expects Alea to produce a sub-95 percent combined ratio this year and show further improvements into 2005 – as well as hitting a 15 percent ROE target.
AM Best predicts ROE will beat the 12 percent mark in 2004 and 2005 as premiums rise by a further 20 percent this year.
S&P also expects KKR to keep its 39 percent holding in the group. A further 38 percent stake is floated on the London Stock Exchange.
One area of disagreement between the agencies centred on Alea’s US casualty book, with AM Best concluding significant uncertainties remain over reserve adequacy, which together with adverse industry loss-cost trends, could harm future earnings.
S&P, however, said prior year loss-reserve development “is not expected to have a significant impact on operating performance”.